One of the key measures President Barack Obama used to develop climate policy could be under threat under President Donald Trump. The “social cost of carbon”, a dollar measure of how much damage is inflicted by a tonne of carbon dioxide, underpins many US and other energy-related regulations (and in the UK too, for example).
The latest estimates from William Nordhaus, one of the best-known economists dealing with climate change issues (together with Nicholas Stern), put the social cost of carbon in 2015 at a baseline of US$31.20. This rises over time as the impacts of climate change worsen.
Conversely, the social cost of carbon is also the “government’s best estimate of how much society gains over the long haul” by reducing CO₂ emissions.
Nordhaus uses an economic model known as the Dynamic Integrated Climate-Economy (or DICE) model, which he developed in the 1990s. I understand it’s one of the leading models for examining the effects of climate change on the economy. Other researchers have adapted and modified DICE to examine issues associated with the economics of climate change.
Social costs of carbon estimates have been – and remain – helpful for assessing the climate impacts of carbon dioxide emission changes, but perhaps not for the incoming Trump administration in the US.
‘More bad news than good news’
First, though, let’s consider the update to Nordhaus’ DICE model. He finds that the results strengthen earlier ones, which indicate “the high likelihood of rapid warming and major damages if policies continue along the unrestrained path” – his view of current policy settings. He revises upwards his estimate of the social cost of carbon by about 50% on the last modelling.
Further, Nordhaus argues that the 2°C “safe” limit set under the Paris Agreement seems to be “infeasible” even with reasonably accessible technologies. This is because of the inertia of the climate system, rapid projected economic growth in the near term, and revisions to the model.
His view is that a 2.5°C limit is “technically feasible” but that “extreme virtually universal global policy measures” would be required. By implication, such measures could refer to geo-engineering and, in particular, removing CO₂ from the atmosphere.
Nordhaus also notes:
“Of the six largest countries or regions, only the EU has implemented national climate policies, and the policies of the EU today are very modest. Moreover, from the perspective of political economy in different countries as of December 2016, the prospects of strong policy measures appear to be dimming rather than brightening.”
As a result of the DICE modelling, Nordhaus states that there is more bad news than good news and that the need for effective climate change policies is “more and not less pressing”.
His results relate to a world without climate policies, which, as he says, “is reasonably accurate for virtually the entire globe today. The results show rapidly rising accumulation of CO₂, temperatures changes, and damages.”
An end to the use of the social cost of carbon?
As well as the definition earlier of that cost, it could also be described as a government’s best estimate “of how much society gains over the long haul by cutting each tonne” of CO₂ emissions.
While the Obama administration relied on the DICE model (and others) in arriving at a social cost of carbon – such cost is already important in the formation of 79 federal regulations – it appears that the incoming Trump administration might modify or end this use.
It has been argued – by Harvard’s Cass Sunstein and the University of Chicago’s Michael Greenstone – that such action would defy law, science and economics. It is probably unlikely that use of the social cost of carbon would be done away with completely (lowering the operative number might be more likely), although Greenstone and Sunstein do contemplate it.
Sunstein and Greenstone conclude that, without it, federal regulations would have no quantifiable benefits. And that would have implications for emission reductions and assessing progress on dealing with climate change.
And Nordhaus concludes:
The future is highly uncertain for virtually all variables, particularly economic variables such as future emissions, damages, and the social cost of carbon.
That’s definitely the case for climate change policy and action in the US following the election of Donald Trump. For President Trump’s supporters, it appears that “turning back the clock is the most important thing the president-elect can do to help businesses succeed”.